Charging for time and recoveries is a billing strategy that remains very popular amongst professional firms.
The reason is simple: since un-recorded time can’t be billed, setting chargeable targets that are based on time encourages team members to track every minute of their working day.
At first glance, this seems to be a clear and logical approach. However, one of the main issues with focusing on chargeable time is the incentive it provides senior team members to hold on to their workload, regardless of the level of professional expertise needed to complete it.
The result is that less work is delegated to junior staff in need of valuable opportunities to develop and progress, as well as routine work completed at an unnecessarily high charge-out rate (which in turn, could impact on recoveries).
A further consequence is that senior team members may switch their focus from winning new business, to completing work that could easily have been done at a lower level.
Recoveries are a second key focus for many professional firms. Yet focusing too heavily on this area could see partners and team members failing to record all of their working time, to ensure recoveries can be met. Partners may also decide not to write off time, if doing so would mean affecting their recovery rates. The result is time left ‘on the clock’.
These scenarios will of course have adverse effects on a professional firm; both on cashflow, and in offering an illusion of work that is less profitable than first appears.
Switch focus to key profitability targets
Since most (if not all) professional firms are interested in increasing their profitability, it could be time to shift focus.
All jobs should ideally be staffed at the most appropriate level, with work properly delegated. This is a simple approach that will improve general efficiency and recoveries, as well as freeing up senior team members to focus on developing the firm. This last point will be crucial, if the objective is to improve profitability.
Said development could then be achieved by increasing margins, and/or by simply taking on more work.
A great many professional firms focus on winning new work, initially at lower margins in order to secure it. However, existing clients can offer an excellent and reliable source of new business, one that often remains untapped.
By spending time focusing on its existing clients, and making the effort to learn more about their needs, a professional firm could gain many opportunities to provide additional and valuable services, from a tried, tested, and trustworthy source (meaning margins should not have to be reduced).
Our specialist team works in partnership with many professional firms, helping them plan to increase profitability and achieve future goals. If you would like to discuss your own strategy in further detail, we can help – simply contact us to arrange an informal meeting.